A model of JIT make-to-stock inventory with stochastic demand

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Richard A. Ehrhardt, Professor (Creator)
The University of North Carolina at Greensboro (UNCG )
Web Site: http://library.uncg.edu/

Abstract: We consider a firm that manages its internal manufacturing operations according to a just-in-time (JIT) system but maintains an inventory of finished goods as a buffer against random demands from external customers. We formulate a model in which finished goods are replenished by a small fixed quantity each time period. In the interest of schedule stability, the size of the replenishment quantity must remain fixed for a predetermined interval of time periods. We analyse the single-interval problem in depth, showing how to compute a cost-minimising value of the replenishment quantity for a given interval length, and characterising the optimal cost, inventory levels and service as functions of the interval length and initial inventory. The model displays significant cost and service penalties for schedule stability. A dynamic version of the problem is also formulated, and shown to be convex in nature with relatively easily computed optima.

Additional Information

Journal of the Operational Research Society (1997) 48, 101 3-1021
Language: English
Date: 1997
inventory, production, stochastic processes

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